THIRD DIVISION
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Cemco holdings, inc., Petitioner, - versus - national life
insurance company of the philippines, inc.,
Respondent. |
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G.R. No. 171815 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and NACHURA, JJ. Promulgated: |
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CHICO-NAZARIO, J.:
This Petition for Review under Rule
45 of the Rules of Court seeks to reverse and set aside the 24 October 2005
Decision[1]
and the 6 March 2006 Resolution[2] of
the Court of Appeals in CA-G.R. SP No. 88758 which affirmed the judgment[3]
dated 14 February 2005 of the Securities and Exchange Commission (SEC) finding
that the acquisition of petitioner Cemco Holdings,
Inc. (Cemco) of the shares of stock of Bacnotan Consolidated Industries, Inc. (BCI) and Atlas
Cement Corporation (ACC) in Union Cement Holdings Corporation (UCHC) was
covered by the Mandatory Offer Rule under Section 19 of Republic Act No. 8799,
otherwise known as the Securities Regulation Code.
The Facts
Union Cement Corporation (UCC), a
publicly-listed company, has two principal stockholders – UCHC, a non-listed
company, with shares amounting to 60.51%, and petitioner Cemco
with 17.03%. Majority of UCHC’s stocks were owned by BCI with 21.31% and ACC with
29.69%. Cemco,
on the other hand, owned 9% of UCHC stocks.
In a disclosure letter dated
In the PSE Circular for Brokers No.
3146-2004 dated 8 July 2004, it was stated that as a result of petitioner Cemco’s acquisition of BCI and ACC’s shares in UCHC,
petitioner’s total beneficial ownership, direct and indirect, in UCC has
increased by 36% and amounted to at least 53% of the shares of UCC, to wit[4]:
|
Particulars |
Percentage |
|
Existing
shares of Cemco in UCHC |
9% |
|
Acquisition
by Cemco of BCI’s and
ACC’s shares in UCHC |
51% |
|
Total
stocks of Cemco in UCHC |
60% |
|
Percentage
of UCHC ownership in UCC |
60% |
|
Indirect
ownership of Cemco in UCC |
36% |
|
Direct
ownership of Cemco in UCC |
17% |
|
Total
ownership of Cemco in UCC |
53% |
As a consequence of this disclosure,
the PSE, in a letter to the SEC dated
In a letter dated
Thereafter, in a subsequent letter
dated
On
On
On
On
In a Decision dated 14 February 2005,
the SEC ruled in favor of the respondent by reversing and setting aside its 27
July 2004 Resolution and directed petitioner Cemco to
make a tender offer for UCC shares to respondent and other holders of UCC
shares similar to the class held by UCHC in accordance with Section 9(E), Rule 19
of the Securities Regulation Code.
Petitioner filed a petition with the
Court of Appeals challenging the SEC’s jurisdiction to take cognizance of
respondent’s complaint and its authority to require Cemco
to make a tender offer for UCC shares, and arguing that the tender offer rule
does not apply, or that the SEC’s re-interpretation of the rule could not be
made to retroactively apply to Cemco’s purchase of
UCHC shares.
The Court of Appeals rendered a
decision affirming the ruling of the SEC.
It ruled that the SEC has jurisdiction to render the questioned decision
and, in any event, Cemco was barred by estoppel from questioning the SEC’s jurisdiction. It, likewise, held that the tender offer
requirement under the Securities Regulation Code and its Implementing Rules
applies to Cemco’s purchase of UCHC stocks. The decretal
portion of the said Decision reads:
IN VIEW OF THE FOREGOING, the assailed decision of the
SEC is AFFIRMED, and the preliminary injunction issued by the Court LIFTED.[5]
Cemco filed a motion for reconsideration which
was denied by the Court of Appeals.
Hence, the instant petition.
In its memorandum, petitioner Cemco raises the following issues:
I.
ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER
NATIONAL LIFE’S COMPLAINT AND THAT THE SEC’S RE-INTERPRETATION OF THE TENDER
OFFER RULE IS CORRECT, WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED
RETROACTIVELY TO CEMCO’S PREJUDICE.
II.
WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE
THE DISPUTE BETWEEN THE PARTIES A QUO OR TO RENDER JUDGMENT REQUIRING CEMCO TO
MAKE A TENDER OFFER FOR UCC SHARES.
III.
WHETHER OR NOT CEMCO’S PURCHASE OF UCHC SHARES IS
SUBJECT TO THE TENDER OFFER REQUIREMENT.
IV.
WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE CA
DECISION, IS AN INCOMPLETE JUDGMENT WHICH PRODUCED NO EFFECT.[6]
Simply stated, the following are the
issues:
1.
Whether or not
the SEC has jurisdiction over respondent’s complaint and to require Cemco to make a tender offer for respondent’s UCC shares.
2.
Whether or not the
rule on mandatory tender offer applies to the indirect acquisition of shares in
a listed company, in this case, the indirect acquisition by Cemco
of 36% of UCC, a publicly-listed company, through its purchase of the shares in
UCHC, a non-listed company.
3.
Whether or not
the questioned ruling of the SEC can be applied retroactively to Cemco’s transaction which was consummated under the
authority of the SEC’s prior resolution.
On the first issue, petitioner Cemco contends that while the SEC can take cognizance of
respondent’s complaint on the alleged violation by petitioner Cemco of the mandatory tender offer requirement under
Section 19 of Republic Act No. 8799, the same statute does not vest the SEC with
jurisdiction to adjudicate and determine the rights and obligations of the
parties since, under the same statute, the SEC’s authority is purely
administrative. Having been vested with
purely administrative authority, the SEC can only impose administrative sanctions
such as the imposition of administrative fines, the suspension or revocation of
registrations with the SEC, and the like. Petitioner stresses that there is
nothing in the statute which authorizes the SEC to issue orders granting
affirmative reliefs.
Since the SEC’s order commanding it to make a tender offer is an
affirmative relief fixing the respective rights and obligations of parties,
such order is void.
Petitioner further contends that in
the absence of any specific grant of jurisdiction by Congress, the SEC cannot,
by mere administrative regulation, confer on itself that jurisdiction.
Petitioner’s stance fails to
persuade.
In taking cognizance of respondent’s
complaint against petitioner and eventually rendering a judgment which ordered
the latter to make a tender offer, the SEC was acting pursuant to Rule 19(13)
of the Amended Implementing Rules and Regulations of the Securities Regulation
Code, to wit:
13. Violation
If there shall be violation of this Rule by pursuing a
purchase of equity shares of a public company at threshold amounts without the
required tender offer, the Commission, upon complaint, may nullify the said acquisition
and direct the holding of a tender offer.
This shall be without prejudice to the imposition of other sanctions
under the Code.
The foregoing rule emanates from the
SEC’s power and authority to regulate, investigate or supervise the activities
of persons to ensure compliance with the Securities Regulation Code, more
specifically the provision on mandatory tender offer under Section 19 thereof.[7]
Another provision of the statute, which
provides the basis of Rule 19(13) of the Amended Implementing Rules and
Regulations of the Securities Regulation Code, is Section 5.1(n), viz:
[T]he Commission
shall have, among others, the following powers and functions:
x x x x
(n) Exercise such other powers as may be provided by
law as well as those which may be implied from, or which are necessary or
incidental to the carrying out of, the express powers granted the Commission to
achieve the objectives and purposes of these laws.
The foregoing provision bestows upon
the SEC the general adjudicative power which is implied from the express powers
of the Commission or which is incidental to, or reasonably necessary to carry
out, the performance of the administrative duties entrusted to it. As a regulatory agency, it has the incidental
power to conduct hearings and render decisions fixing the rights and
obligations of the parties. In fact, to
deprive the SEC of this power would render the agency inutile, because it would
become powerless to regulate and implement the law. As correctly held by the Court of Appeals:
We are nonetheless convinced that the SEC has the
competence to render the particular decision it made in this case. A definite inference may be drawn from the
provisions of the SRC that the SEC has the authority not only to investigate
complaints of violations of the tender offer rule, but to adjudicate certain
rights and obligations of the contending parties and grant appropriate reliefs in the exercise of its regulatory functions under
the SRC. Section 5.1 of the SRC allows a
general grant of adjudicative powers to the SEC which may be implied from or
are necessary or incidental to the carrying out of its express powers to
achieve the objectives and purposes of the SRC.
We must bear in mind in interpreting the powers and functions of the SEC
that the law has made the SEC primarily a regulatory body with the incidental
power to conduct administrative hearings and make decisions. A regulatory body like the SEC may conduct
hearings in the exercise of its regulatory powers, and if the case involves
violations or conflicts in connection with the performance of its regulatory
functions, it will have the duty and authority to resolve the dispute for the
best interests of the public.[8]
For sure, the SEC has the authority
to promulgate rules and regulations, subject to the limitation that the same
are consistent with the declared policy of the Code. Among them is the protection of the investors
and the minimization, if not total elimination, of fraudulent and manipulative
devises. Thus, Subsection 5.1(g) of the
law provides:
Prepare, approve, amend or repeal rules, regulations
and orders, and issue opinions and provide guidance on and supervise compliance
with such rules, regulations and orders.
Also, Section 72 of the Securities
Regulation Code reads:
72.1. x x x To effect the provisions and purposes of this Code, the Commission
may issue, amend, and rescind such rules and regulations and orders necessary
or appropriate, x x x.
72.2. The
Commission shall promulgate rules and regulations providing for reporting,
disclosure and the prevention of fraudulent, deceptive or manipulative
practices in connection with the purchase by an issuer, by tender offer or
otherwise, of and equity security of a class issued by it that satisfies the
requirements of Subsection 17.2. Such
rules and regulations may require such issuer to provide holders of equity
securities of such dates with such information relating to the reasons for such
purchase, the source of funds, the number of shares to be purchased, the price
to be paid for such securities, the method of purchase and such additional
information as the Commission deems necessary or appropriate in the public
interest or for the protection of investors, or which the Commission deems to
be material to a determination by holders whether such security should be sold.
The power conferred upon the SEC to
promulgate rules and regulations is a legislative recognition of the complexity
and the constantly-fluctuating nature of the market and the impossibility of
foreseeing all the possible contingencies that cannot be addressed in advance. As enunciated in Victorias Milling Co., Inc. v. Social Security Commission[9]:
Rules and regulations when promulgated in pursuance of
the procedure or authority conferred upon the administrative agency by law,
partake of the nature of a statute, and compliance therewith may be enforced by
a penal sanction provided in the law.
This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by
the legislature. The details and the manner
of carrying out the law are often times left to the administrative agency
entrusted with its enforcement. In this
sense, it has been said that rules and regulations are the product of a
delegated power to create new or additional legal provisions that have the
effect of law.
Moreover, petitioner is barred from
questioning the jurisdiction of the SEC.
It must be pointed out that petitioner had participated in all the proceedings
before the SEC and had prayed for affirmative relief. In fact, petitioner defended the jurisdiction
of the SEC in its Comment dated
This Honorable Commission is a highly specialized body
created for the purpose of administering, overseeing, and managing the
corporate industry, share investment and securities market in the
Petitioner did not question the
jurisdiction of the SEC when it rendered an opinion favorable to it, such as
the
While the lack of jurisdiction of a court may be
raised at any stage of an action, nevertheless, the party raising such question
may be estopped if he has actively taken part in the
very proceedings which he questions and he only objects to the court’s
jurisdiction because the judgment or the order subsequently rendered is adverse
to him.
On the second issue, petitioner
asserts that the mandatory tender offer rule applies only to direct acquisition
of shares in the public company.
This contention is not meritorious.
Tender offer is a publicly announced
intention by a person acting alone or in concert with other persons to acquire
equity securities of a public company.[12] A public company is defined as a corporation
which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00
and with 200 or more stockholders, at least 200 of them holding not less than
100 shares of such company.[13] Stated differently, a tender offer is an
offer by the acquiring person to stockholders of a public company for them to
tender their shares therein on the terms specified in the offer.[14] Tender offer is in place to protect minority
shareholders against any scheme that dilutes the share value of their
investments. It gives the minority
shareholders the chance to exit the company under reasonable terms, giving them
the opportunity to sell their shares at the same price as those of the majority
shareholders.[15]
Under Section 19 of Republic Act No.
8799, it is stated:
Tender Offers. 19.1. (a) Any person or group of persons acting in
concert who intends to acquire at least fifteen percent (15%) of any class of
any equity security of a listed corporation or of any class of any equity
security of a corporation with assets of at least Fifty million pesos (P50,000,000.00)
and having two hundred (200) or more stockholders with at least one hundred
(100) shares each or who intends to acquire at least thirty percent (30%) of
such equity over a period of twelve (12) months shall make a tender offer to
stockholders by filing with the Commission a declaration to that effect; and
furnish the issuer, a statement containing such of the information required in
Section 17 of this Code as the Commission may prescribe. Such person or group of persons shall publish
all requests or invitations for tender, or materials making a tender offer or
requesting or inviting letters of such a security. Copies of any additional material soliciting
or requesting such tender offers subsequent to the initial solicitation or
request shall contain such information as the Commission may prescribe, and
shall be filed with the Commission and sent to the issuer not later than the
time copies of such materials are first published or sent or given to security
holders.
Under existing SEC Rules,[16]
the 15% and 30% threshold acquisition of shares under the foregoing provision was
increased to thirty-five percent (35%).
It is further provided therein that mandatory tender offer is still
applicable even if the acquisition is less than 35% when the purchase would
result in ownership of over 51% of the total outstanding equity securities of
the public company.[17]
The SEC and the Court of Appeals
ruled that the indirect acquisition by petitioner of 36% of UCC shares through
the acquisition of the non-listed UCHC shares is covered by the mandatory
tender offer rule.
This interpretation given by the SEC
and the Court of Appeals must be sustained.
The rule in this jurisdiction is that the
construction given to a statute by an administrative agency charged with the
interpretation and application of that statute is entitled to great weight by
the courts, unless such construction is clearly shown to be in sharp contrast
with the governing law or statute.[18]
The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the establishment of
diverse administrative agencies for addressing and satisfying those needs; it
also relates to accumulation of experience and growth of specialized
capabilities by the administrative agency charged with implementing a particular statute.[19]
The SEC and the Court of Appeals
accurately pointed out that the coverage of the mandatory tender offer rule
covers not only direct acquisition but also indirect acquisition or “any type
of acquisition.” This is clear from the
discussions of the Bicameral Conference Committee on the Securities Act of
2000, on
SEN. S. OSMEÑA.
Eto ang mangyayari diyan, eh. Somebody controls 67% of the Company. Of course, he will pay a premium for the first
67%. Control yan,
eh. Eh, kawawa
yung mga maiiwan, ang 33% because the
value of the stock market could go down, could go down after that, because
there will (p. 41) be no more market. Wala nang gustong
bumenta. Wala nang… I mean maraming gustong bumenta, walang gustong bumili kung hindi yung majority owner.
And they will not buy. They
already have 67%. They already have
control. And this protects the
minority. And we have had a case in
CHAIRMAN ROCO.
So what is it that you want to achieve?
SEN. S. OSMEÑA.
That if a certain group achieves a certain amount of ownership in a
corporation, yeah, he is obligated to buy anybody who wants to sell.
CHAIRMAN ROCO. Pro-rata lang. (p. 42).
x x x
x
REP. TEODORO.
As long as it reaches 30, ayan na. Any
type of acquisition just as long as it will result in 30… (p.50)…
reaches 30, ayan na. Any
type of acquisition just as long as it will result in 30, general tender,
pro-rata.[20] (Emphasis supplied.)
Petitioner counters that the legislator’s
reference to “any type of acquisition” during the deliberations on the
Securities Regulation Code does not indicate that congress meant to include the
“indirect” acquisition of shares of a public corporation to be covered by the
tender offer rule. Petitioner also avers that it did not directly acquire the
shares in UCC and the incidental benefit of having acquired the control of the
said public company must not be taken against it.
These arguments are not convincing. The
legislative intent of Section 19 of the Code is to regulate activities relating
to acquisition of control of the listed company and for the purpose of
protecting the minority stockholders of a listed corporation. Whatever may be the method by which control
of a public company is obtained, either through the direct purchase of its
stocks or through an indirect means, mandatory tender offer applies. As appropriately held by the Court of
Appeals:
The petitioner posits that what it acquired were
stocks of UCHC and not UCC. By
happenstance, as a result of the transaction, it became an indirect owner of
UCC. We are constrained, however, to
construe ownership acquisition to mean both direct and indirect. What is decisive is the determination of the
power of control. The legislative intent
behind the tender offer rule makes clear that the type of activity intended to
be regulated is the acquisition of control of the listed company through the
purchase of shares. Control may [be]
effected through a direct and indirect acquisition of stock, and when this
takes place, irrespective of the means, a tender offer must occur. The bottomline of
the law is to give the shareholder of the listed company the opportunity to
decide whether or not to sell in connection with a transfer of control. x x x.[21]
As to the third issue, petitioner stresses
that the ruling on mandatory tender offer rule by the SEC and the Court of
Appeals should not have retroactive effect or be made to apply to its purchase
of the UCHC shares as it relied in good faith on the letter dated 27 July 2004
of the SEC which opined that the proposed acquisition of the UCHC shares was
not covered by the mandatory offer rule.
The argument is not persuasive.
The action of the SEC on the PSE
request for opinion on the Cemco transaction cannot
be construed as passing merits or giving approval to the questioned
transaction. As aptly pointed out by the
respondent, the letter dated
Assuming arguendo that the letter dated
While a judicial interpretation becomes a part of the
law as of the date that law was originally passed, this is subject to the
qualification that when a doctrine of this Court is overruled and a different
view is adopted, and more so when there is a reversal thereof, the new doctrine
should be applied prospectively and should not apply to parties who relied on
the old doctrine and acted in good faith.
To hold otherwise would be to deprive the law of its quality of fairness
and justice then, if there is no recognition of what had transpired prior to
such adjudication.
It is apparent that private respondent misconceived
the import of the ruling. The decision
in Columbia Pictures does not mean that if a new rule is laid down in a case,
it should not be applied in that case but that said rule should apply
prospectively to cases arising afterwards. Private respondent’s view of the
principle of prospective application of new judicial doctrines would turn the
judicial function into a mere academic exercise with the result that the
doctrine laid down would be no more than a dictum and would deprive the holding
in the case of any force.
Indeed, when the Court formulated the Wenphil doctrine, which we reversed in this case, the Court
did not defer application of the rule laid down imposing a fine on the employer
for failure to give notice in a case of dismissal for cause. To the contrary, the new rule was applied
right then and there. x x x.
Lastly, petitioner alleges that the
decision of the SEC dated
This contention is baseless.
The decretal
portion of the SEC decision states:
In view of the foregoing, the letter of the
Commission, signed by Director Justina F. Callangan, dated July 27, 2004, addressed to the Philippine
Stock Exchange is hereby REVERSED and SET ASIDE. Respondent Cemco is
hereby directed to make a tender offer for UCC shares to complainant and other
holders of UCC shares similar to the class held by respondent UCHC, at the
highest price it paid for the beneficial ownership in respondent UCC, strictly
in accordance with SRC Rule 19, Section 9(E).[24]
A reading of the above ruling of the
SEC reveals that the same is complete.
It orders the conduct of a mandatory tender offer pursuant to the
procedure provided for under Rule 19(E) of the Amended Implementing Rules and
Regulations of the Securities Regulation Code for the highest price paid for
the beneficial ownership of UCC shares.
The price, on the basis of the SEC decision, is determinable. Moreover, the implementing rules and regulations
of the Code are sufficient to inform and guide the parties on how to proceed
with the mandatory tender offer.
WHEREFORE, the
Decision and Resolution of the Court of Appeals dated
|
|
MINITA V. CHICO-NAZARIOAssociate Justice |
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice |
ANTONIO EDUARDO B. NACHURA
Associate Justice |
ATTESTATION
I attest that the conclusions in the above
Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third
Division
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution, and the Division Chairperson’s Attestation, it is hereby
certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
REYNATO S. PUNO
Chief Justice
[1] Penned by Associate Justice Mario
L. Guariña III with Associate Justices Rebecca De Guia-Salvador and Arturo G. Tayag,
concurring. Rollo, pp. 68-79.
[2]
[3]
[4]
[5]
[6]
[7] Section 5, Subsection 5.1. (d) of the Securities Regulation Code provides:
[T]he Commission shall have, among others, the following powers and functions:
x x x x
(d) Regulate, investigate or supervise the activities of persons to ensure compliance.
[8] Rollo, p. 75.
[9] 114 Phil. 555, 558 (1962).
[10] Rollo, pp. 182-183.
[11] 426 Phil. 522, 530 (2002).
[12] The Philippine Securities Regulation Code (Annotated), Rafael A. Morales (2005 Ed.), p. 153.
[13]
[14]
[15] Securities Regulation Code (Republic Act No. 8799) Annotated with Implementing Rules and Regulations, Lucila M. Decasa (First Edition, 2004) p. 64.
[16] Rule 19(2) of the Amended
Implementing Rules and Regulations of the Securities Regulation Code dated
2. Mandatory tender offers
A. Any person or group of persons acting in concert, who intends to acquire thirty-five percent (35%) or more of equity shares in a public company shall disclose such intention and contemporaneously make a tender offer for the percent sought to all holders of such class, subject to paragraph (9)(E) of this Rule.
In the event that the tender offer is oversubscribed, the aggregate amount of securities to be acquired at the close of such tender offer shall be proportionately distributed across both selling shareholder with whom the acquirer may have been in private negotiations and minority shareholders.
B. Any person or group of persons acting in concert, who intends to acquire thirty-five percent (35%) or more of equity shares in a public company in one or more transactions within a period of twelve (12) months, shall be required to make a tender offer to all holders of such class for the number of shares so acquired within the said period.
C. If any acquisition of even less than thirty-five percent (35%) would result in ownership of over fifty-one percent (51%) of the total outstanding equity securities of a public company, the acquirer shall be required to make a tender offer under this Rule for all the outstanding equity securities to all remaining stockholders of the said company at a price supported by a fairness opinion provided by an independent financial advisor or equivalent third party. The acquirer in such a tender offer shall be required to accept any and all securities thus tendered.
[17]
[18] Nestle
Philippines, Inc. v. Court of Appeals, G.R. No. 86738,
[19]
[20] Rollo, pp. 256-257.
[21]
[22] San Juan de Dios Hospital Employees Association-AFW v. National Labor Relations Commission, 346 Phil. 1003, 1010 (1997).
[23] 387 Phil. 345, 357 (2000).
[24] Rollo, p. 263.